What employer profit sharing contribution formulas are available?
{ back to top } Most 401(k) plans allow an employer to make non-elective (profit sharing) contributions to eligible employees. Depending upon the provisions of your plan, there are various methods to allocate the contribution among the eligible employees. The simplest method is the pro-rata allocation method. In the pro-rata method, all eligible employees receive a contribution equal to the same percentage of pay. An example might be that all employees receive a contribution of 2% of pay. Another allocation method is “integrated with social security.” With an integrated allocation formula all employees receive a base contribution equal to some percentage of pay. In addition, any employee who earn more than the social security wage base ($102,000 in 2008) receives an additional contribution for pay greater than the social security wage base. Some plans offer “age weighted” or “allocation rate group” methods of allocating employer contributions. Age weighted plans allow you to make highe
